Why Are Bankruptcy Exemptions So Complicated?

by Susanne Robicsek,

When you file for bankruptcy, you get a certain amount of property
that you can keep ("exempt") and start over with. But if someone
files and has more that that exempt / protected amount, then the
non-exempt property can be sold to pay towards the debts owed.

Even if a bankruptcy debtor has property over the protected allowance,
they may be able to keep it if they are able to pay the overage to the
creditors – either quickly in Chapter 7 bankruptcy, or through a 3-5
year Chapter 13 payment plan.

What you get to keep through bankruptcy is called exempt property, and
it is governed by exemption laws.

Under the pre-2005 bankruptcy laws, you used the exemptions of the
state you lived in when the case was filed, even if you hadn't lived
there long. Under the current laws, what you can keep depends on
where you live and how long you have lived there.

The bankruptcy law was changed in a major overhaul in 2005. One
change was made so that you aren't able to claim the exemptions of
your new state unless you have been there at least two years.

If your former state allows non-residents to claim their exemptions
then you might have to use your old state's laws, or if you might have
to use federal exemptions.

If you hadn't lived where your bankruptcy case is filed for at least
two years, then what exemptions cover you are determined by a
complicated formula between state laws and federal laws.

What is the purpose of this change? Well, presumably it is so that
people about to file for bankruptcy couldn't move to a state with
better exemptions and get better treatment.

The idea that the law needed to change to prevent debtors from moving
to get a better exemption in bankruptcy is ridiculous in most cases.
It certainly was not a common occurrence. I would go so far as saying
that it was a rare event, especially when it came to the typical
consumer debtor, and not a scenerio that I ran across as being top on
most people's list when juggling their debts.

By a typical consumer debtor, I mean regular people. People who would
not describe themselves as being wealthy, who work hard to make a
modest living and take care of their families, who may be middle class
but have to watch their money.

The truth of the matter is that few regular people would ever think of
moving because they are trying to keep property from creditors. Most
regular people aren't even aware of the differences between exemption
laws – would you?

Few consumer debtors filing Chapter 7 or Chapter 13 bankruptcy have
assets of value enough to even consider such a drastic measure.

And in many cases, all the debtors' property is protected, including
their homes. They wouldn't even need to move to keep everything.
Even if someone was aware that another state's property exemptions
were better, a move would require money – which most bankruptcy
debtors don't have! Not to mention having to leave their homes and
jobs behind. This just isn't the type of hardship most debtors and
their families would do.

The irony is that those who would have assets of enough value to
consider moving to protect, are also more likely to be wealthier and
they won't necessarily be deterred by the two years. They may have
have the ability to plan for the two years it will take if they do
want to move to protect their assets. However, many already figured
out ways to protect and shield their property from creditors.

But the bottom line is that for many people filing for bankruptcy, you
won't need to think about moving to protect your property. If you are
in financial trouble, go see a good lawyer to discuss bankruptcy and
what you can keep in your state.

For more information on these matters please call our office at 305
548 5020, option 1.

Twitter: www.twitter.com/yoelmolina_mo
Faceback page: www.facebook.com/lawofficeofyoelmolina
Linkedin profile: http://tinyurl.com/linkedinpagemo
Blog: http://tinyurl.com/molawblog

"Turn to us when you need help"

Chapter 13 Bankruptcy and Local Custom

by Douglas Jacobs,

A Chapter 13 Bankruptcy is governed by Title 11 of the United States
Code. The Code lays out the actual laws for filing, confirming and
maintaining a Chapter 13 bankruptcy.

But the actual practice involves more local custom than anything else.
The specific plan, process and even discharge can vary greatly from
district to district.

First, some districts have Bankruptcy Administrators and some have
U.S. Trustees that oversee the process.

Second, many districts have adopted form plans to use. Those plans
can have different provisions all within the structure of the
bankruptcy code. For example, in my district, the Eastern District of
California, if a debtor is behind in his mortgage payment, the form
plan requires the debtor to make the regular house payments through
the plan along with the arrears.

Over the hill in the Northern District of California, the plan
requires no such thing and a debtor is free to make the house payment
directly to the mortgage company while paying the arrears through the
Chapter 13 plan.

Third, some districts require the debtor to set a confirmation hearing
to have the plan approved by the court. In other places, the
confirmation hearing is set by the court and concluded without the
necessity of an appearance by the debtor unless the Trustee has
objected to the plan.

Fourth, during plan administration, the required record keeping and
reporting by the debtor to the trustee can differ; as can the
procedure for requesting permission to incur new debt (when a new car
is bought, for example).

And finally, when it's time to wrap up the Chapter 13 Bankruptcy, the
discharge process varies. Some districts require the debtor to file a
motion for discharge, whereas in some areas, the discharge is almost
automatic and the Trustee does the paperwork.

The bottom line: find a local attorney knowledgeable in the practices
in your district before filing a Chapter 13 Bankruptcy.

For more information on these matters, please call our office at 305
548 5020, option 1.

Twitter: www.twitter.com/yoelmolina_mo
Faceback page: www.facebook.com/lawofficeofyoelmolina
Linkedin profile: http://tinyurl.com/linkedinpagemo
Blog: http://tinyurl.com/molawblog

"Turn to us when you need help"

My Friend Says…

by Rachel Lynn Foley,

Almost every bankruptcy attorney can testify that they have heard "my
friend says…" from a potential client or a current client. I
explained in my Pigs get Fat and Hogs are Slaughtered in Bankruptcy
article that bankruptcy cases are like snowflakes. No two cases are
ever alike. Therefore just because your friend was able to file a
Chapter 7 the facts specific to your individual case will vary and may
prevent you from filing the same type of case. For me if someone
starts a sentence with "my friend says", this is a warning sign.

If someone constantly compares their case to another it makes it
difficult to work the case because they are not trusting your advice.
That is not to say that you should not ask questions, do research or
ask how does your case differ from the friend's case. It just means
you need to obtain all the facts before you pass judgment. There are
many factors that come into play when a case is filed. Let's say your
friend files for bankruptcy and they were able to keep their boat and
fishing tackle but the trustee wants your 4-wheeler. You don't
understand and you think it is just not fair that you are losing stuff
and he gets to continue to go play every weekend at the lake.

Does this sound extreme? It is not. I hear accusations on a monthly
basis of "other" people being to able to get off scot free without
paying their creditors or giving up any assets. Does this happen?
Yes. How does this happen? Well the answer can be as varied as
snowflakes themselves but let's run through a couple of scenarios.

The first and foremost is a debtor who thinks they are smarter than
the system and does not list the boat and/or some of their creditors.
Is this penalty of perjury under bankruptcy law? Yes, and it is a
punishable offense. The trustee does their best to ferret out the
truth but if the debtor does not disclose their assets or if the asset
is not listed in a public database then the trustee may never know
that the asset exists. But before you even consider lying about your
creditors and/or assets ask yourself is it worth doing a nickel in
Leavenworth in order to keep that boat? For those who don't speak
prison slang a nickel equals five years. I do not know of any asset
that is worth doing five years in the federal penitentiary. Further
it strikes me as funny that I never hear that is not fair that my
friend is paying back all their debt but I do not have to.

The next scenario is a an attorney who does not list the asset and or
creditor for whatever reason. You know the fact that the documents
are not right but you figure oh well the attorney will be in trouble
and not you. This line of thinking is dangerous because not only will
the attorney be in trouble if they are caught but so will you because
you are signing the documents under penalty of perjury that everything
is truthful and accurate. The only time the debtor is not going to be
charged with a crime is when they have absolutely no clue what the
attorney filed nor did they give permission for the documents to be
filed.

You may be thinking that no attorney would ever do such a thing
because they can lose their license to practice law. Unfortunately,
it can and does happen as I represented a debtor where the attorney
filed the case that was fraudulent without her knowledge. She was
able to get her Chapter 7 discharge but she had to prove she had no
knowledge of the false documents that were filed on her behalf with
the court.

Another scenario where you case may differ from your friend's is where
your friend has a boat and let's say that the boat is worth $5,000.
You have a 4-wheeler worth $4,000. Both of you attempt to file a
Chapter 7 bankruptcy. Additional facts show that your friend has five
kids and is married. You are single and have no children. Both the
boat and the 4-wheeler are owned outright so the assets have equity
and can be sold to pay your respective creditors. The trustee is
going to let the boat go but he wants to take your 4-wheeler and sell
it for your debt. No fair, how can this happen? This can happen
under the law because your friend may be able to protect his boat
through exemptions.

I describe an exemption as a magic blanket that makes the asset
invisible to the creditor. Another way to explain this is an
exemption will match dollar to dollar to the value of the asset and
may prevent this asset from being sold.

In Missouri the main two exemptions I would use to exempt this boat is
the wild card and head of household. The wild card is $600 per
person. So if your friend files with his wife he now has a $1,200
exemption he can use to reduce the amount of funds the trustee is
entitled to take from the sale of the boat. This means that if the
boat sold for $5,000 the trustee can only keep $3,800 of those funds.
In addition to the wild card your friend will receive $1,250 credit
for being the head of the household and $350 a piece for each of his
children if they are under the age of eighteen. So he now will have
an additional $1,250 + ($350*5 children) = $3,000 to use to protect
that boat. So we take the $1,200 for the wild card exemption plus the
$3,000 for the head of household and he has a total of $4,200 to
protect the boat. The trustee will generally abandon their interest
at this point because it is not worth their time to sell the boat and
only receive $800.

So in our scenario we made you a single person filing with a $4,000
4-wheeler. The only exemption that you are entitled to is the wild
card because you do not have kids and you are not married. So you can
only protect $600 of that $4,000 that is if and only if you do not
have $600 sitting in your bank account that needs protection as well
on the day of filing. So the bottom line is the trustee has a
potential asset worth $3,200 to $4,000 and that amount of money is
more appealing to them than the $800 in equity that your friend has.

Confused yet? It is not meant to be. But I do want to show you that
there are many different scenarios as to why your friend's bankruptcy
differs from yours. No matter what anyone says bankruptcy cases are
not cut and dry. Similarly I do not think that any case is easy
because each and every case has the potential to go belly up if the
facts are not disclosed and/or the right questions are not asked.

You should always ask questions in your case or when you are deciding
to hire an attorney. Try and obtain as many facts as you can before
you start comparing your case to someone else's so that you can make a
true comparison.

Remember that knowledge is power. The more knowledge you have about
why your case is filed in a particular way the more power you will
have to run your own race and have a successful bankruptcy.

For more information on these matters, please call our office at 305
548 5020, option 1.

Twitter: www.twitter.com/yoelmolina_mo
Faceback page: www.facebook.com/lawofficeofyoelmolina
Linkedin profile: http://tinyurl.com/linkedinpagemo
Blog: http://tinyurl.com/molawblog

"Turn to us when you need help"

Business Bankruptcy: When, How, and What Kind?

If you own your own business, and that business is in trouble, or even
just not doing as well as it once was, among the tools you should
consider using is a business bankruptcy. If you want to continue to
operate your business, but restructure its debt, your options are
Chapter 11, which is a business reorganization, and Chapter 13, which
is a personal reorganization. (In contrast, a Chapter 7 is a
liquidation.) How do you know which is the best choice?

Like any other bankruptcy topic, the answer depends on your situation.
Factors that will go into determining which is the best option
include how the business is organized (sole proprietorship,
corporation, partnership), how much total debt the business owes, how
much debt you personally have guaranteed for the business, and even
how much personal debt you have. Your business assets as well as your
personal assets may be a consideration. The most important factor of
all may be how the company is doing, and what the prospects are for
the future. Is the business on a downward slide, has it just hit rock
bottom, or is it improving, but not fast enough to keep up with the
demands of creditors?

There are some parameters that may make the choice easier. For
example, if you have a corporation, and there is very little
crossover between the corporate debt and your personal debt, Chapter
11 may be your only option. On the other hand, if your business is
unincorporated, or you've run it out of your back pocket, without a
lot of separation between personal and business assets and
liabilities, Chapter 13 may seem a better fit. But there are always
circumstances that can turn a typical case on its head. The only way
to make an informed decision is to consult an experienced bankruptcy
lawyer, and go through the process of examining both the legal issues,
as well as the practical issues. Legal issues include things like
debt limits, and how business debt is collateralized. Practical
issues include whether you need financing to continue to operate, and
whether the value of your business is worth preserving given the cost
of bankruptcy.

Are you getting the sense that the decision to file bankruptcy
requires a great deal of thought and planning? I hope so, because
that is the central message here. I would say that in almost every
case planning makes all the difference. You've heard about big
companies filing bankruptcy. Most of them do so only after weeks or
months of planning, communication with lenders and other parties, and
hiring consultants and other professionals to help in the turnaround
process. A small business may not require quite the same level of
planning, and it may not be economically feasible to hire turnaround
experts, but the more planning, the better the outcome is likely to
be. Some large Chapter 11 debtors even go into the filing with a
reorganization plan already approved by creditors, called a
prepackaged, or "prepack" Chapter 11. That doesn't work with every
case, but it certainly helps eliminate some of the uncertainty of a
bankruptcy reorganization.

Even if your reorganization isn't going to be a pre-pack, your
reorganization plan should be a part of your thinking from day one.
It is easy to get caught up in the mechanics of the bankruptcy
filing–the paperwork, the meetings, and the administrative tasks–and
overlook the long-term planning. Or, as we like to say around here,
get so busy fighting alligators you forget to drain the swamp. You
should go into a business reorganization with a clear idea of where
you want to end up. For example, your goal may be to extend
short-term liabilities into long-term debts, or convert debt to
equity, or even find a buyer for the business. If you are just sort
of vaguely thinking that bankruptcy will buy you some time to turn
things around, you are probably wasting your time and money. Time can
certainly help, but you need to have a plan to make it work for you.
And if you wait until the absolute last minute to consider bankruptcy,
or even to file bankruptcy, you are depriving yourself, and your
business, of a lot of the benefit of a bankruptcy reorganization. If
you feel your business is in in a downward cycle, and maybe especially
if you think things are looking up, but you are carrying too much debt
because of a downward cycle, consult an experienced bankruptcy lawyer
who can help you work through the options and plan for a more
prosperous future.

For more information on these matters, please call our office at 305 548 5020.

Twitter: www.twitter.com/yoelmolina_mo
Faceback page: www.facebook.com/lawofficeofyoelmolina
Linkedin profile: http://tinyurl.com/linkedinpagemo
Blog: http://tinyurl.com/molawblog

"Turn to us when you need help"

Bankruptcy modifies the collection of all kinds of debt.

by Andy Miofsky,

Do you receive late notices and collection letters in the mail? You
probably opened them at first, but now do you just throw them in an
unopened pile, hoping to deal with them later – and later never comes?

Are you tired of explaining why you have not paid a bill, embarrassed
telling complete strangers your personal tragedies? Millions of
people behind in their bills do not look forward to opening the mail,
answering a phone or speaking to bill collectors.

Did you know you could modify the way all your debt is collected?
Yes, all your debt. 11 U.S.C. 362.

Did you know Congress passed a law that lets you eliminate entire
categories of debt? 11 U.S.C.727, 1141, 1328.

Isn't it time you started getting some Happy Mail?

At the first moment you file bankruptcy you automatically obtain
relief that modifies the way your creditors treat you. With few
exceptions, all collection activity must stop, all mail and phone
calls must stop and creditors must change the way they try to get
money from you.

Debt collectors are no longer permitted to contact you by telephone
while you are represented in a bankruptcy case. Peace of mind and
calm are restored to your life.

Student loans, mortgage companies, car title lenders, medical bills,
taxes, and credit cards debts are all included and are all covered by
the automatic stay when you file bankruptcy. Bankruptcy requires
creditors present their debt to the court for payment and only debt
you can afford to pay gets paid during your case. Many other debts
are discharged.

Some exceptional debt survives bankruptcy and may be collected from
you in the future. Hopefully after the bankruptcy case has shed you
from having to pay other debt you can be in happier place and able to
deal with the remaining bills.

For more information on these matters, please call our office at 305
548 5020, option 1.

Twitter: www.twitter.com/yoelmolina_mo
Faceback page: www.facebook.com/lawofficeofyoelmolina
Linkedin profile: http://tinyurl.com/linkedinpagemo
Blog: http://tinyurl.com/molawblog

"Turn to us when you need help"

Change Your Chapter 13 Bankruptcy Payment

by L. Jed Berliner

Yes, Virginia, you CAN change your Chapter 13 bankruptcy payment if
something changes in your situation.

Chapter 13 requires a monthly payment from three to five years. It
allow you to cure arrearages for mortgages, car loans, taxes, or
family support, or pay what you are required to pay under the Means
Test. A portion of the money may go to general creditors, like credit
cards.

There's a common fear that those payment is written in stone for the
full length of your case. That's just not true.

Any decrease in income or increase in expenses can support a modified
or amended plan where you pay less. Lower income could result from a
cut in pay or change of jobs, or increased costs for work benefits
such as health insurance. Increased expenses might result from car
maintenance for a car as it gets older, or raising a child as the
child gets older, or a medical condition or simply an increase in
medical co-payments.

If you need to pay a fixed amount to cure a certain arrears, then
perhaps you can pay less for a longer time up to the five year maximum
and achieve that cure.

The payment can end entirely with a Chapter 13 hardship discharge or
conversion to Chapter 7, but you do not get the benefit of curing a
loan's arrears if the cure is not completely paid.

Some jurisdictions allow a suspension of the payment in the event of
a short term problem, like changing jobs or moving or a sudden and
large medical or repair expense. Under a suspension, the total of all
payments does not change and the extended payments can never exceed
the five year maximum.

Here's my point. You file a Chapter 13 case for whatever the reason
is. Don't be afraid of being stuck with the original payment. The
payment can change if your situation changes.

Jed Berliner is a Massachusetts bankruptcy and foreclosure defense attorney.

For more information on these matters, please call our office at 305 548 5020.

Twitter: www.twitter.com/yoelmolina_mo
Faceback page: www.facebook.com/lawofficeofyoelmolina
Linkedin profile: http://tinyurl.com/linkedinpagemo
Blog: http://tinyurl.com/molawblog

"Turn to us when you need help"

Private Student Loan Bankruptcy Fairness Act of 2011

by Nicholas Ortiz,

Last year U.S. Representative Steve Cohen of the Ninth District of
Tennessee introduced a bill called the Private Student Loan Bankruptcy
Fairness Act of 2011. The bill would make private student loans
generally dischargeable in bankruptcy as a way of addressing the
mounting student debt crisis that many have written about. The bill
was referred to a subcommittee in July 2011, and there it still sits
awaiting further action. So, I called the Congressman Cohen's office
today, and he responded by email with the following comment:

"Although I held hearings and marked up the Private Student Loan
Bankruptcy Fairness Act when I was Chairman of the Commercial and
Administrative Law Subcommittee last Congress, the Republican
leadership of the Judiciary Committee has not shown any interest in
moving the bill forward in this Congress. Thanks to the recent report
by NACBA, President Obama's efforts to address the student loan debt
crisis, and other press reports about the crushing student loan debt
burden, we are continuing to bring attention to the bill and gaining
additional cosponsors. I am hopeful that we will ultimately be able to
pass the bill, particularly if control of the House changes hands
again."

This is where the bill stands as of February, 2012. Movement is
unlikely until after 2013 when the new Congress begins after the
November 2012 elections. The bill only has a chance of emerging from
committee if the democrats retake the House. I'll try to stay on top
of the bill and update the information here or on my student loan
blog.

For more information on these matters, please call our office at 305
548 5020, option 1.

Twitter: www.twitter.com/yoelmolina_mo
Faceback page: www.facebook.com/lawofficeofyoelmolina
Linkedin profile: http://tinyurl.com/linkedinpagemo
Blog: http://tinyurl.com/molawblog

"Turn to us when you need help"